Factors That Determine ROI of Real Estate Developments

The real estate industry is extremely complex. However, it is also fascinating and very diverse. Equal to any other investment, real estate projects have particular their own financial characteristics.

In most cases, the expected return on investment and risk level of a real estate project can be defined by three important factors: product type, life cycle stage, and location.

Below, experts from real estate development company The Leser Group, explain what each of them refers to.

Real Estate Product Type

The Leser Group experts indicate that there are different real estate products based on who the real estate project is aimed at.

The five most important are:

• Corporate: Rent or sale of offices
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• Commercial: Rent or sale of commercial premises
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• Residential: Single family and multifamily
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• Industrial: Rent or sale of factories, industrial parks, among others
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• Others: For example, mixed use.

Life Cycle Stage

According to The Leser Group real estate experts, this factor refers to the level of development that a real estate project needs, or in other words, the degree of transformation that the developer implements. It is worth specifying that the higher the degree of transformation of the real estate project, the higher the implicit risk.

The Leser Group real estate experts share the different life stages of a real estate project:

• Development: It involves the purchase of land and acquisition of licenses.
• Rehabilitation: It involves the purchase of a building to make some necessary improvements in order to increase its value and then sell or rent it.
• Stable: It involves the purchase of a property that generates cash flow, without making any changes in the construction.

Location

The Leser Group real estate experts point out that supply and demand factors are those that make a location good for construction of a real estate project.

Demand Factors include population growth, socioeconomic status, nearby businesses and age distribution.

Supply Factors include how easy it is to find new properties, obtain building permits and the level of the costs.

The Leser Group real estate experts specify that locations with robust and growing demand where supply cannot grow as quickly are the best locations to build your next real estate project.